Author Topic: Retiring like M3 but without the rental house  (Read 2214 times)

hodedofome

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Retiring like M3 but without the rental house
« on: July 01, 2015, 10:30:44 AM »
So it got me thinking today that MMM retired not just with a ~$600k investment portfolio, but also with a rental house or two. From this article http://www.washingtonpost.com/business/meet-mr-money-mustache-the-man-who-retired-at-30/2013/04/26/71e3e6a8-acf3-11e2-a8b9-2a63d75b5459_print.html it appears that the rental is paying for their living expenses and the index funds are just gravy. That would seem that when they retired, their investment portfolio was equivalent to $1.2 million+ ($25k / 4% = $625k, plus the $600k investments). That's a lot more than I see many on this site talking about what they'd need to retire on. So, it's possible you'll need a lot more $$$ in your stock/bond portfolio if you don't have a real estate rental like MMM. There's not necessarily a question here, but more of an observation.

It would seem with his paid off personal house and the rental(s), along with the $600k investment portfolio, that his net worth at the time of retirement could easily have been $1.5 million+
« Last Edit: July 01, 2015, 10:36:37 AM by hodedofome »

JLee

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Re: Retiring like M3 but without the rental house
« Reply #1 on: July 01, 2015, 11:13:41 AM »
It's all in how much your expenses are - if you can live on $24k/yr, then $600k is enough (assuming 4% SWR).

catccc

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Re: Retiring like M3 but without the rental house
« Reply #2 on: July 01, 2015, 11:22:52 AM »
Right, and for a lot of people around here, retirement doesn't mean living solely off of stock/bond based investments.

I sometimes think about getting into real estate rentals, but more often than not, I don't think I'm up for the landlording work, and it would be hard for me to let someone else do it.  So I'll have to retire like CCC (that's me) instead of MMM. 

Still, when I FI, I plan on doing some kind of "fun" work to cover most of my basic living expenses, and allowing my portfolio to grow further for a number of years.

I'm thinking a portfolio of $1-1.2M for expenses of about $40K.


Another Reader

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Re: Retiring like M3 but without the rental house
« Reply #3 on: July 01, 2015, 11:49:24 AM »
At the risk of being called out as the Internet Retirement Police, at no time did the MM family depend on the portfolio for their living expenses.  In addition to the rental, Mr. MM did carpentry and other remodeling work for pay, and Mrs. MM earned the occasional real estate commission.  Their assets grew substantially even disregarding the blog.

It's one thing to look back over a period of time, knowing the outcome, and say, see, the numbers show it can be done.  It's quite another to sell your funds and ETF's every month to pay the rent and buy food, knowing that if things go bad, you have fewer options to recover as time goes on. 

I think the folks over at early-retirement.org generally take a more conservative approach, with a keener eye on the risks.  Yes, it's an older, wealthier crowd.  You would think with more money available and fewer years of retirement to fund, they would be less conservative.  But they are more conservative, and in my opinion, more realistic about the future.

Dicey

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Re: Retiring like M3 but without the rental house
« Reply #4 on: July 01, 2015, 12:27:05 PM »
There other ways to be in the Real Estate market without being a landlord. Flipping houses, buying REITs, or buying the ugliest house on the block and fixing it up while you live in it (or in a CL trailer in the backyard) and then selling it for a nice, tax-free profit, are all Mustachian-certified ways of creating wealth. Or a combination of all three, in any order. Hell, once a person gets that comfortable in the market, they might even conquer the fear of being a landlord.

The absolute beauty of Real Estate is the principle of leverage. If you want to buy a 100k house, there are loans that will let you do that for as little as 3% down. If you're a vet you can get 0% down. If you want to invest 100k into equities, you generally need to amass 100,000 after-tax* dollars first. (*Insert wink and nod to the Back Door Roth here.)

An interesting question/poll might be to ask how many people FIRE'd without any type of real estate ownership along the way. I'd guess it's a fairly small number. Short of an inheritance or windfall, Real Estate is a powerful wealth creation tool, if used correctly.

deborah

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Re: Retiring like M3 but without the rental house
« Reply #5 on: July 01, 2015, 07:45:48 PM »
It would seem with his paid off personal house and the rental(s), along with the $600k investment portfolio, that his net worth at the time of retirement could easily have been $1.5 million+
His expenditure each year means that his original investment portfolio would have been enough for them to live on. The rest is gravy, not necessary for his lifestyle. Maybe you could suggest he writes a post assuming that this was his only source of income, and how it would be fairing?

An interesting question/poll might be to ask how many people FIRE'd without any type of real estate ownership along the way. I'd guess it's a fairly small number. Short of an inheritance or windfall, Real Estate is a powerful wealth creation tool, if used correctly.
I am someone who has done just this (I assume you exclude your own home). The other people I know who are FIRE have done just this. Several others in the forum appear to have done just this. As you say, it might be interesting.